[Blog 19] Not Your Money, You Don’t Care: Five Causes of Retrenchment

In the past year, the job market in Singapore has been far from rosy with a significant number of retrenchments. Singapore Press Holdings (SPH) let go off 130 of its employees to cut costs and most recently, Nestle Singapore reportedly laid off about 42 staff, stating they are “committed to being a business that thinks long-term and continuously evolves over the years to implement new processes and ways of working … in a rapidly changing business environment”.

Retrenchment occurs for various possible reasons, most of which are associated with the suffering of losses or changing business requirements:

Cost reduction
The single biggest cause of retrenchment is to cut down on fixed costs, especially under unfavourable market conditions. Employee payroll, for instance, is a liability that affects the retained profits of a company; hence, reducing payroll outflow is a significant way to cut cost and secure profits. Factors like employee benefits and overproduction may also cost a company their earnings.

Mergers & Acquisitions
In order to stay in profit and broaden their market reach, some companies will choose to combine their operations with that of another company or entirely purchase another to function as a single entity, resulting in redundant roles and positions. Due to the duplication of staff that occurs from restructuring, companies has to resort to retrenchment to eliminate all excess workforce.

Outsourcing
From time to time, a company might want to streamline the products and services that they offer by reducing employees when they realise that it is much more cost effective to change a vendor or utilise external workers rather than their own. Such changes generally tend to boost productivity and profitability.

Re-Strategizing
When a company wants to concentrate or focus on specific areas of operations, they may choose to terminate any existing tasks or projects that have no assured returns or is non-core. Because there may not be room for the affected employees to get on board other projects, the company has few options but to retrench them.

Automation
The introduction of mechanisation and technological disruptions, often forces companies to rethink their operations and get rid of obsolete job roles. Purchasing a machine that speeds up the process of production may be more cost-efficient than manual labour.

Retrenchment is never a pleasant ordeal—especially for the employees concerned—yet it has unfortunately become a stark reality in today’s economy as a growth strategy for many businesses. The immediate inference that one might make is that retrenchment avoids adverse financial situations, but it can also lead to a loss of skilled and efficient employees, causing the remaining workforce to question their commitment and loyalty to the company. Alternatively, some companies choose to take the path less taken by implementing more creative HR solutions such as pay freezes, reduced working hours and mandatory vacation time. Regardless of the impetus of change, retrenchment should be undertaken with caution to curtail any negative impact on operations and employee morale.

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